Barbara Yaffe: Vancouver investors engage in risky business

Vancouverites are Canada’s most risk-prone investors

Vancouverites are Canada's most risk-prone investors.

Photograph by: Jonathan Hayward
, CP

VANCOUVER — Vancouverites, arguably the most financially stressed people in Canada, also happen to be the country’s most risk-prone investors.

A national study conducted for the Investor Education Fund (IEF) by The Brondesbury Group also reveals Vancouver is Canada’s most optimistic city when it comes to future investment returns.

The findings are intriguing when viewed against past observations about people living in B.C.’s largest city — that they face the most onerous housing costs and carry the largest amount of consumer debt.

You might think that folks here might have less room to manoeuvre economically and therefore would take a safer, more conservative approach in their investing behaviours.

But that’s not the case.

“Vancouverites are risk takers,” declares the Canadian State of Mind Risk Survey 2014, based on a September 2013 survey conducted for Investor Education Fund. According to the poll, 43 per cent of respondents in Vancouver were willing to take above-average investing risks, compared with just 29 per cent of Canadian respondents.

It notes: “By community, Vancouver and Toronto investors are the most risk-prone and favour higher risk products, more than other cities.”

By contrast, British Columbians — excluding those in Vancouver — are not particularly risk prone or optimistic.

Rather, provincially, it is Albertans who are the big risk takers while Quebecers are the least optimistic and risk prone.

In the study, stocks, hedge funds, and limited partnerships are among products viewed as being higher risk. Lower risk investments refer to guaranteed investment certificates (GICs) and savings bonds while medium risk would refer to products such as mutual funds.

So, what is it about living in Vancouver that would prompt a person to be optimistic and risk prone when it comes to investing? Living on the edge? A frontier mentality? Home to many high-risk mineral exploration plays?

The study offers little explanation, beyond the following observation that could provide a clue.

“Investors aiming to earn investment income for day-to-day living are prone to take disproportionately more risk than many others ...”

It seems, 40 per cent in this group are in the 55-plus age group, normally a lower risk bunch.

But, “not earning enough income sometimes pushes the individuals in this group to take more risk than is typical for their age.”

Could this be what is happening in Vancouver? Are people feeling pressed for cash in an expensive city, pushing their investment strategies to the limit to address an affordability challenge?

Also, Vancouver has a generally younger population overall compared with other Canadian centres. Younger people tend to be more optimistic, reports Tom Hamza, president of the Education Investor Fund.

John Richards, a Simon Fraser University business prof, believes the absence of any correction in house prices since the early 1990s “has given many investors confidence that Vancouver is unique.”

Also, “There is a great deal of paper equity among many (homeowners).”

One-third of the survey’s respondents reported having lost as much as 20 per cent of their portfolio in a single year. No doubt many Vancouverites are in that group, given that higher stakes can lead to bad outcomes.

But for all the high-risk inclinations of Vancouverites, the study points out “a fascinating contradiction”: Vancouver investors own high levels of low-risk investments — GICs and certificates of deposit — which “may be related to the significant presence of credit unions in B.C. as a whole ... a prime source for these products,” explains Hamza.

Nothing like a GIC to offer comfort when big risk translates into big loss.

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